Health Care Fraud: Newest Numbers and Enforcement Actions

The U.S. Justice Department recently announced that it recovered more than $3 billion in settlements and judgments in civil health care and war-related fraud cases in the last fiscal year. The vast majority of the $3 billion—$2.8 billion—was recovered under the whistleblower provisions of the False Claims Act (FCA). Additionally, of the $3 billion, $2.4 billion involved health care fraud, most of which was attributed to the Medicare and Medicaid programs. Since January 2009, the Department has recovered $8.7 billion ($6.6 billion attributable to federal health care dollars), which is the largest three year total in the Department’s history.

The record setting recoveries under the whistleblower provisions of the FCA paralleled a sharp increase in the number of whistleblower lawsuits filed, which, after staying in the 300s to low 400s range for last decade, hit an all-time high at 638 in the last fiscal year. The Patient Protection and Affordable Care (PPACA) has added additional incentives for whistleblowers to report fraud in this manner.

But the federal government has not lost focus on private health insurance fraud, and the goverment recently reached a plea agreement with a Texas doctor who pleaded guilty to defrauding private insurers. The government pursued the case under federal mail fraud and conspiracy laws, and the doctor was sentenced to seventy months and sixty months of incarceration, respectively, and ordered to pay $3,821,082in restitution.

This case serves as a reminder that even though the primary focus has been recovering federal health care dollars—which has been viewed by many as a great success—private health insurance fraud is not beyond the scrutiny of federal prosecutors.

Delaware Focused on Cutting Medicaid Costs

In these tough economic times, courts across the country have been addressing challenges to State action aimed at reducing Medicaid costs. In October, the US Supreme Court heard argument (but has not yet issued a decision) in Douglas v. Independent Living Center to answer the question of whether or not Medicaid recipients and providers are able to sue States that attempt to reduce reimbursement rates required by the Medicaid Act. The case arose when California, in an attempt to save money, reduced rates that it would pay doctors and hospitals participating in Medicaid. The federal requirement for Medicaid reimbursement rates is that payments must at least be high enough to entice healthcare providers to take Medicaid patients. More recently, Washington state doctors were victorious in a challenge to a state rule limiting Medicaid enrollees to three emergency room visits a year for conditions that the state labeled “non-emergent.” However, the judge’s order in that case was procedural in nature, and the Washington State Health Care Authority, the state’s Medicaid agency, is likely to initiate another rulemaking procedure in an attempt to reduce what the state deems unnecessary emergency room care for Medicaid enrollees by $70 million in two years.

State efforts to cut Medicaid costs are not new. While the federal government contributes half the cost of the program, Medicaid consumes 22% of the average state’s annual budget; this is more than states pay for education, transportation, and prisons. As we see downturns in the national economy, more individuals lose their jobs and become eligible for the program; and in times where the state sees less revenue from tax dollars, it is charged with paying more into their respective programs. These effects are far reaching and are impacting states all over the country. Reportedly, Massachusetts no longer covers restorative dental care and dentures and Washington no longer covers eyeglasses or hearing aids. Delaware is no different.

Currently, Medicaid covers almost 25% of Delaware’s population and some opine that our system is broken, with a $600 million bill this year alone and an expectation that more than 35,000 Delawareans will be newly eligible in fiscal year 2013. As reported by the Wilmington News Journal, the Delaware Commission on Medicaid Cost/Health Care Containment, a 22-member commission, recently met to vote on more than two dozen ideas meant to control the rising costs of the program. But after five months of debate, some are disappointed with how little was accomplished. To read the full article, visit http://www.delawareonline.com/article/20111215/BUSINESS13/112150326/Short-list-fixes-left-Medicaid.

Some of the Commission’s recommendations include:

• Taxing sugary drinks to raise money for Medicaid and discourage the consumption of such products
• Support for “medical homes” that enable better management of patient care
• Adopting a waiver plan for retired state employees
• Increasing the use of electronic prescriptions and medical records
• Adopting a reciprocity agreement with other states to attract more dentists to Delaware

Some of the ideas the Commission rejected include:

• Reducing reimbursement rates for lab fees
• Reducing reimbursement rates for non-urgent visits to the emergency room or limiting non-urgent visits to three per year
• Imposing standards on Medicaid recipients to reduce lifestyle choices such as smoking and setting standards for nutrition and exercise (Federal regulations forbid imposing higher costs for these reasons)

It is important for Delaware physicians to be on notice of legislation, rulemaking or any policy changes affecting Medicaid reimbursement. Additionally, in such cash-strapped times, it is more likely for the State to increase efforts to recover overpayments. Healthcare providers should be ready to respond to investigations and audits aimed at recovering Medicaid payments throughout the State. As more Delawareans become eligible for Medicaid, the State will continue to focus on how to cut costs and providers should be keenly aware of how such changes will affect their practice and patient care.

Medicare Stops Paying for Most Urine Drug Screens

Highmark Medicare Services has issued a Local Coverage Determination (“LCD”) applicable to services performed on or after November 11, 2011, that eliminates coverage for urine drug screens (“UDS”) used by physicians to monitor whether patients are adhering to their medication regimens. The LCD limits coverage of UDS to circumstances where patients present with a suspected drug overdose, with known substance abuse or dependence, or for chronic pain patients suspected of illicit drug use ONLY if there has been an acute change in the patient’s physical or mental status, which the LCD equates with unexplained coma, unexplained altered mental status, severe cardiovascular instability, unexplained metabolic or respiratory acidosis, or unexplained seizures. The LCD expressly provides that drug screening for compliance purposes, diversion, or in asymptomatic patients is not covered.

Many of the leading experts in pain management, as well as the Federal Drug Enforcement Administration, support the use of random UDS to detect drug diversion and thwart drug-seeking behavior. In fact, as recently as last year Michele M. Leonhart, the Administrator of the Drug Enforcement Administration, wrote that pain management specialists who fail to use random urine drug screens to detect misuse of prescription pain medication breach the standard of care in prescribing controlled.

Two factors have led to the broad agreement that urine drug screens are essential for weeding our patients who are misusing prescription pain medication. First, urine drug screens are effective in identifying what is known as “aberrant drug behavior,” which includes misusing illicit drugs and diverting prescription pain medication for sale. One relatively recent study identified a 45% rate of unexpected test results in a pain management practice, including 20% of patients who tested positive for illicit substances in their urine. Second, there are few, if any, reliable ways of predicting aberrant drug behavior. Authors on this subject agree that there is simply no way to obtain information from and about a patient that will meaningfully predict whether that patient will engage in aberrant drug behavior. So periodic urine drug screens act as a deterrent against such behavior and as a tool for identifying it.

Supporters of the LCD will argue that there is less risk of aberrant drug behavior among Medicare beneficiaries than in other segments of the population. Perhaps. But when you talk to pain management practitioners, what you hear is that abuse and misuse is rampant everywhere, even among those covered by Medicare. Many of the leading clinical experts in the field of pain management recommend random urine drug screens for all patients.

Another concern is how other health insurance carriers will respond to this determination. Carriers closely watch Medicare coverage determinations. Will other carriers implement similar coverage determinations?

For now, the focus will be on how to deal with Medicare beneficiaries. As a result of the LCD, Delaware physicians, particularly pain management physicians, who prescribe narcotics for the treatment of chronic pain and follow random UDS procedures to monitor compliance with medication regimens are now faced with a quandary with respect to their Medicare patients—forego random UDS or require those patients to pay for UDS themselves. The first option is hardly viable in our current environment.

Delaware physicians will need to advise their Medicare patients that random UDS are not covered services and, accordingly, the patients will be expected to pay for them. Given that much of the Medicare-covered population is of limited means, it seems that the recent LCD will create an interesting tension between patients and their doctors. Now that Medicare is refusing to pay for these tests, who will?

Governor Markell urges Delaware lawmakers to do more to address prescription drug abuse

The focus on prescribing narcotics and other controlled substances for the management of pain is nothing new, but Delaware has recently taken initiatives to bring that focus into perspective. In a post on October 14, I wrote about the recently proposed rule on the use of controlled substances in the treatment of pain. That rule establishes the Board of Medical Licensure and Discipline’s (“Board”) formal recognition of use of controlled substances in the treatment of pain. After a recent series of articles in the News Journal about the abuse of prescription pain killers in Delaware, pain management physicians should be alerted to all of the changes coming to state and participate in the processes to fight this epidemic.

In a November 10th article, the News Journal reported that. Governor Markell indicated that he would either propose specific legislation or ask the Board to pass a regulation. Once Delaware establishes its electronic prescription systems next year, Governor Markell pledges to work with the governors of the surrounding states to share data in Delaware’s new prescription monitoring program. Delaware is currently one of fifteen states without such a system already in place. The Governor also indicated that a public awareness campaign may strengthen the requirements of this new program.

Investigations into the practice of prescribing controlled substances are on the rise, and since January of 2010, the Board has suspended or reprimanded nine doctors for violations. In what has become a prescription drug abuse epidemic, such prescription habits will also draw attention from state and federal authorities fighting against health care fraud.

Developing new prescription monitoring systems will provide doctors who prescribe controlled substances with a valuable tool for identifying drug-seeking patients, which in the end should serve to reduce some of the abuse that has plagued Delaware and other states.

DMMA Issues Regulations Regarding Non-Payment for Provider Preventable Conditions

As required by the federal health care reform law passed in March 2010, Delaware’s Division of Medicaid and Medical Assistance issued final regulations on November 1, 2011, that provide, as of July 1, 2011, that DMMA will not reimburse hospitals for provider preventable conditions (PPCs), which include foreign objects retained after surgery, blood transfusions with incompatible blood, falls and trauma occurring in the hospital, and the like. A full list of PPCs can be found at http://www.dmap.state.de.us/downloads/bulletins/federal.prohibition.payment.provider.pdf. The payment bar does not apply to services related to pre-existing conditions, i.e., those “present on admission” (“POA”).

The final regulations also require Delaware hospitals that are Medicaid providers to report the occurrence of a PPC “through the appropriate claim(s) type submission process.” The regulation does not elaborate on the mechanics of reporting but DMMA has promised that more information on the reporting requirement will follow.

The OIG Issues its 2012 Work Plan

Each October marks the height of playoff baseball, the changing of the leaves, and the beginning of a new fiscal year for the Federal government. With the beginning of each new fiscal year, health care providers of all sizes and types are informed of the audit and enforcement plans of the Federal regulators charged with overseeing the federal health care programs. The Office of Inspector General (“OIG”) at the Department of Health and Human Services (“HHS”), the entity tasked with protecting HHS programs by detecting and preventing health care fraud and abuse, released its 2012 Work Plan this month, providing insight on the reviews and activities that the OIG will pursue during the next twelve months and beyond.

The Work Plan offers health care providers a glimpse into the future and an opportunity to see the issues that the OIG plans to focus its investigative resources on. Knowing what to expect in the coming year regarding enforcement and audits can be a useful tool in providers’ own internal compliance efforts. Providers may take a look at their own practices in these related areas in order to assess compliance with the applicable federal laws. Some of the key areas affecting Delaware health care providers are listed below, and the entire plan can be viewed at the OIG website. ( http://oig.hhs.gov/reports-and-publications/workplan/index.asp#current)

HOSPITALS

Medicare Inpatient and Outpatient Payments to Acute Care Hospitals
OIG will review Medicare payments to hospitals to determine compliance with selected billing requirements. OIG will utilize data mining techniques to select hospitals for focused reviews and will then recommend recovery of overpayments and identify those providers deemed high-risk, who routinely submit improper claims.

Acute-Care Hospital Inpatient Transfers to Inpatient Hospice Care
OIG will review Medicare claims for inpatient stays where the beneficiary was transferred to hospice care. The relationship (financial or common ownership) between the entities will be examined, as well as how Medicare treats reimbursement for similar transfers to other settings.

Medicare Outpatient Dental Claims
Medicare hospital outpatient payments for dental services will be reviewed to determine if payment was proper under Medicare requirements. Dental services are only covered under a few exceptions, but based on OIG audits, providers received significant overpayments.

Hospital Claims with High or Excessive Payments
OIG will review high payments to determine whether they were appropriate. Specifically, OIG’s work will include outpatient claims in which payments exceeded charges.

Inpatient Prospective Payment System: Hospital Payments for Nonphysician Outpatient Services
OIG will review the appropriateness of these payments for services that were provided to beneficiaries shortly before or during covered stays at acute care hospitals. Prior reviews have revealed a significant number of improper claims.

Medicare Inpatient and Outpatient Hospital Claims for the Replacement of Medical Devices
Medicare is not responsible for the full cost of a replaced medical device if the hospital receives a partial or full credit from the manufacturer. As such, OIG will review whether claims for the insertion of replacement devices utilized the proper modifier when a credit is received.

Observation Services During Outpatient Visits
Improper use of observation services may result in high cost sharing for beneficiaries, so OIG will review Medicare payments for observation services provided by outpatient departments.

Hospital Admissions With Conditions Coded Present on Admission
OIG will review Medicare claims to determine which facilities (e.g., SNF or rehabilitation facilities) most frequently transfer patients with certain diagnoses that were coded as being present on admission.

Accuracy of Present-on-Admission Indicators Submitted on Medicare Claims
Beginning in 2008, CMS required hospitals to submit present-on-admissions indicators with each diagnosis code on inpatient claims. The Affordable Care Act provides that hospitals with high rates of hospital-acquired conditions will receive reduced payments, and as such, accurate present-on-admission indicators are necessary for CMS to carry out this new law. OIG will review the accuracy of the present-on-admission indicators that were submitted by hospitals in 2008.

NURSING HOMES

Nursing Home Compliance Plans
OIG will begin to review nursing homes’ compliance plans after Section 6102 of the Affordable Care Act mandated compliance and ethics programs to detect and prevent criminal, civil, and administrative violations. CMS must issue regulatory requirements for the programs by 2012, but OIG will begin to review those programs already in place.


OTHER PROVIDERS

Physicians: Incident-To Services
OIG will review physician billing for “incident-to” services to assess whether payment had a higher error rate than the rate for non-incident-to services. OIG believes such services may be vulnerable to overutilization, and as such, the services will be subject to closer scrutiny.

Physicians: Place-of-Service Errors
OIG will review physicians’ coding on Medicare Part B claims for services performed in ambulatory surgical centers and hospital outpatient departments to determine whether they properly coded the places of service. Federal regulations provide for different levels of payments to physicians depending on where services are performed.

Evaluation and Management Services: Use of Modifiers During the Global Surgery Period
OIG will review the use of certain claims modifier codes during the global surgery period to determine whether the use was appropriate and in accordance with Medicare requirements.

Diagnostic Radiology: Excessive Payments
OIG will review payments for high-cost diagnostic radiology tests to determine whether they were medically necessary. Additionally, the review will target whether, and to what extent, the same diagnostic tests are ordered both by the primary care physician and specialists for the same treatment.

Medicare Payments for Part B Claims with G Modifiers
OIG will review payments from 2002 to 2010 for claims where certain modifier codes were used to indicate that Medicare denial was expected. The review will identify the extent to which Medicare paid those claims and the providers with atypically high billing related to the modifiers.

Delaware Board of Medical Licensure and Discipline Issues Proposed Rule on Use of Controlled Substances for the Treatment of Pain

On September 30, the Delaware Board of Medical Licensure and Discipline issued a proposed rule, “Use of Controlled Substances for the Treatment of Pain,” and has asked for comments preceding a public hearing in November. The proposed rule adopts the Federation of State Medical Board’s Model Policy for the Use of Controlled Substances for the Treatment of Pain and is meant to “alleviate licensed practitioner’s uncertainty, to encourage better pain management, and to minimize practices that deviate from the appropriate standard of care.”

The Board recognizes that the appropriate treatment of pain is fundamental to the practice of medicine, but it notes that practitioners may lack knowledge regarding pain management or may fear investigation or sanction by federal, state and local agencies, which have been focusing on pain management practices. These factors contribute to the “inappropriate treatment of pain.” The rule implies that the failure to become knowledgeable about treating pain is considered inappropriate just as the failure to follow statutory requirements in prescribing controlled substances. The proposed rule will consider the inappropriate treatment of a pain “a departure from standards of medical practice,” and such departures will result in investigations and potential discipline. Thus, the purpose of the proposed rule is to establish specific requirements for using controlled substances to treat chronic pain as well as the required safeguards to minimize risks of drug abuse and diversion. The comment period, which is open up to and including the date of the public hearing, November 1, 2011, is the provider’s opportunity to influence the final regulation.

The preamble to the rule states that the Board will not discipline a licensed practitioner for ordering, prescribing, dispensing or administering controlled substances “for a legitimate medical purpose and in the course of professional practice.” The prescribing of a controlled substance must be in the course of a practitioner-patient relationship and “should be based on a diagnosis of unrelieved pain.” The decision to prescribe controlled substances will be considered “a legitimate medical purpose” if it is based on “sound clinical judgment.” The takeaway for providers from the preamble is an emphasis on documentation. While the Board recognizes the place for controlled substances in the treatment of pain, the overriding concerns of abuse and diversion require extensive documentation of the practitioner-patient relationship. Under the rule:

“[t]he practitioner’s conduct will be evaluated to a great extent by the outcome of pain treatment, recognizing that some types of pain cannot be completely relieved, and by taking into account whether the drug used is appropriate for the diagnosis, as well as improvement in patient functioning and/or quality of life.”

The proposed rule requires a documented evaluation of the patient and a treatment plan. The benefits and risks of controlled substances must be discussed and if a patient is considered “high risk” for medication abuse, the patient must enter into a treatment agreement with the practitioner and submit to, among other conditions, random urine drug screening.

Importantly, the proposed rule does not envision the decision to treat pain with controlled substances as the end of the treatment continuum; practitioners shall review the course of pain treatment on a continued basis to determine whether alternative treatment modalities are more appropriate for the patient. This raises a few issues. First, it is possible that pain patients being treated with controlled substances may have different goals than their provider. There is any number of reasons that a patient may refuse alternative treatment options, such as invasive surgeries. Communication will be of the utmost importance, but the rule does not envision potentially common scenarios where the patient and practitioner disagree on the continued use controlled substances days, weeks, or months into the treatment relationship. And when patient and practitioner disagree during an ongoing treatment regimen, the specter of abandonment looms overhead.

Again, documentation requirements are stressed, and a section of the proposed rule addresses the maintenance of accurate and complete medical records. However, practitioners can look at these requirements as protective measures to assure compliance not only with appropriate standards of treatment, but also pain treatment coding and billing, which is receiving high levels of scrutiny from government payers and enforcement agencies.

A public hearing will be held on November 1, 2011 at 3:00 PM in the second floor conference room A of the Cannon Building, 861 Silver Lake Boulevard, Dover. Those in attendance will be invited to share their comments. Written comments may also be submitted to this address up to the date of the public hearing. For more information and to read the full proposed rule, visit http://regulations.delaware.gov/register/october2011/proposed/15%20DE%20Reg%20498%2010-01-11.htm.

Delaware Health Insurers Required to Provide Free Coverage for Immunizations

As required by the federal Health Care Reform law (the Patient Protection and Affordable Care Act), the Delaware General Assembly passed amendments to the state’s insurance code requiring health insurance carriers providing coverage in Delaware to cover certain immunizations and preventive services without requiring enrollees to pay copayments, coinsurance or deductibles. Governor Markell signed the bill into law on September 23rd, and it applies to policies issuing or renewing after June 30, 2011. A complete list of the immunizations and services covered under the new law can be found at http://www.healthcare.gov/news/factsheets/2010/07/preventive-services-list.html
While the Delaware insurance code previously mandated coverage for many of these services, such as mammograms and colonoscopies at certain ages, it did not prevent insurers from imposing co-pays or other charges on individuals receiving them.

Fraud Investigations Aiming for the Top: Government Scrutiny of Health Care Executives

In his testimony before a House of Representatives subcommittee, Chief Counsel for the HHS-OIG Lewis Morris expressed the Federal Government’s frustration with repeat offenders and indicated a new strategy for fighting fraud and abuse among health care enterprises:

“We are concerned that the providers that engage in health care fraud may consider civil penalties and criminal fines a cost of doing business. . . . One way to address this problem is to attempt to alter the cost-benefit calculus of the corporate executives who run these companies. By excluding the individuals who are responsible for the fraud, either directly or because of their positions of responsibility in the company that engaged in fraud, we can influence corporate behavior without putting patient access to care at risk.

HHS, the Justice Department, and the Food and Drug Administration have been independently shifting their target to individual executives in health care fraud investigations and prosecutions. Executives at drug companies, medical device companies, nursing homes, and other health care groups now have more to worry about than the hefty fines their companies are forced to pay; these executives could face criminal charges even if they were not involved in the scheme and exclusion from the Federal programs.

Morris continued, saying that “when there is evidence that an executive knew or should have known of the underlying misconduct of the organization, OIG will operate with a presumption in favor of exclusion of that executive.” To be sure, exclusion from the federal programs is a career ender, as the enterprise would no longer be able to bill the federal programs with the excluded executive at the helm. The authority the OIG points to for this power is under section 1128(b) of the Social Security Act, which allows OIG to hold responsible individuals accountable for the misconduct of their organization. It is only recently, however, that OIG has been focusing on using this power on the top executives of these organizations. It used to be that only executives who had been charged and entered pleas were excluded. Last year, however, the inspector general excluded the owner/executive of drug manufacturer Ethex Corporation even though the Justice Department did not charge him.

But this theory was recently tested and HHS retreated. Howard Solomon, chief executive of drug company Forest Laboratories, received notice from HHS-OIG that he would be excluded from the Federal programs. Solomon received the letter because a Forest subsidiary pleaded guilty to marketing violations in 2010 and agreed to a $313 million settlement, but Solomon was not personally charged and there was never any alleged wrongdoing on his part. According to a press release from Forest, the “only basis given in the letter notifying Mr. Solomon of the potential action is that he is ‘associated with’ Forest.” Ultimately, after protest from the business community, HHS retreated from its exclusion letter.

Despite HHS backing down against Solomon and Forest, the climate of investigations and prosecutions against executives is still heating up. As Morris said in a May Associated Press interview, “[t]he behavior of a company starts at the top." In the ever growing culture of compliance coming out of Washington, it is more important than ever for executives to become involved in their organization’s ongoing compliance efforts, and to hold subordinates accountable for running a compliant organization.

Health Care Practices Must Inform Employees of Labor Rights

On August 30, 2011, the National Labor Relations Board (NLRB) issued a final rule that will require all private employers, including health care practices, covered by the National Labor Relations Act (NLRA) to notify employees of their rights under the Act. This notification’s substance is included on a poster provided by the NLRB, which informs employees of their rights, among others, to join a union and collectively bargain. The poster may be downloaded and printed in either black-and-white or color, and must be posted in the workplace. In addition to physically posting the notice, if personnel rules are customarily posted on the Internet or an intranet site, the notification must also be posted there. Translated versions must be posted where at least 20% of employees are not proficient in English. A failure to post this notice will be deemed an unfair labor practice under the NLRA. The rule goes into effect on November 14, 2011.

Feds Deny Delaware Insurance Commissioner’s Application for Medical Loss Ratio Adjustment

In a September 9th letter the Centers for Medicare & Medicaid Services denied Delaware Insurance Commissioner Stewart’s application for an adjustment to the 80 percent medical loss ratio (“MLR”) standard applicable to the individual health insurance market in Delaware beginning in 2011 as a result of the federal health care reform legislation, the Patient Protection and Affordable Care Act (the “Act”). Section 1001 of the Act required issuers in the individual market to spend at least 80 percent of premium dollars on reimbursement for clinical services and activities that improve health care quality for enrollees. Beginning in 2011, if an issuer does not meet the 80 percent standard, it is required to provide rebates to enrollees.

The Act permits states to apply for adjustments to the 80 percent standard if applying that standard may destabilize the market for individual health insurance coverage in the state. Commissioner Stewart applied for an adjustment of the standard to 65 percent, 70 percent and 75 percent for the reporting years 2011, 2012 and 2013, respectively. Of the three largest issuers of individual health insurance coverage in the state, Blue Cross Blue Shield, Golden Rule, and Aetna, Blue Cross Blue Shield already meets the 80 percent standard but Golden Rule and Aetna do not and, according to media reports, threatened to pull out of the individual insurance market in Delaware if an adjustment was not obtained. Golden Rule and Aetna had not, however, provided the required 180-day notice of withdrawal from the Delaware individual market of the time of CMS’s decision. Some individual consumers and small business owners voiced objections to Commissioner Stewart’s application arguing it was a concession to the insurance companies and not in the best interest of Delaware consumers.

CMS, which has previously granted adjustment requests from five states and denied such a request from one state, North Dakota, denied Delaware’s request because the evidence presented did not establish that application of the 80 percent MLR standard would destabilize the Delaware individual market. Among other things, CMS found that Golden Rule and Aetna would remain “substantially profitable” even if they had to pay rebates as a result of not meeting the 80 percent MLR standard.

Third Circuit Adopts Implied False Certification Liability under False Claims Act

“Men must turn square corners when they deal with the government.”

While Justice Holmes penned the above quote in a different context, it was recently invoked by the United States Court of Appeals for the Third Circuit in its decision to adopt the implied false certification theory for liability under the False Claims Act (“FCA”). In United States ex rel Wilkins v. United Health Group, the Third Circuit joined the Second, Sixth, Ninth, Tenth, Eleventh, and District of Columbia Circuits in recognizing that healthcare providers can be liable under the FCA if the provider makes a claim for payment without disclosing that it violated regulations that affect its eligibility for payment. For Delaware providers, this means compliance with federal health laws has taken on a new dimension of exposure and they must be more careful than ever in submitting claims to the federal programs.

By way of review, in order to establish a prima facie violation under the FCA, the Government or a relator—a qui tam plaintiff—must prove: (1) that the provider presented or caused to be presented a claim for payment; (2) that was false or fraudulent; (3) that the provider knew to be false or fraudulent. The Courts have identified two categories of false or fraudulent claims under the FCA: (1) factually false and (2) legally false.

A factually false claim is one that misrepresents the items or services provided. A legally false claim is where the “false certification” theory originates, where a provider knowingly and falsely certifies that it has complied with a statute or regulation that is a condition of government payment. In Wilkins, the Third Circuit has now adopted a further distinction, and yet another avenue for FCA liability: (1) express false certifications and (2) implied false certifications.

An express false certification is where the provider falsely certifies that it is in compliance with the regulations that are prerequisites to payment in connection with the claim, such as a certification that the provider holds the requisite license to provide the services. Alternatively, the implied false certification rests on the idea that the mere act of submitting a claim, without any words of certification at all, implies compliance with the preconditions to payment. The Third Circuit noted that it must be proven that had the Government been aware of the provider’s violations of the Medicare laws and regulations, it would not have paid the claim. To state this condition another way, under the implied false certification theory, it must be shown that compliance with the regulation allegedly violated was a condition of payment, and not simply a condition of participation in the federal programs.

Under the facts of Wilkins, the relators first alleged that United Health personnel violated Medicare marketing regulations. The Third Circuit affirmed the District Court and dismissed that count of the complaint because compliance with the Medicare marketing regulations is not a condition of payment. However, the relators also alleged that United Health’s subsidiaries violated the Anti-Kickback Statute (“AKS”), also forming the basis of FCA liability. The Third Circuit found that the relators stated a claim in this regard, because Medicare regulations require Medicare Advantage and Prescription Drug Plan providers to enter into agreements with CMS, affirmatively agreeing to comply with the AKS. Therefore, the Court reasoned that “[t]o plead a claim for relief under an implied certification theory, appellants were required to allege, as they did, that appellees submitted claims for payment to the Government at a time that they knowingly violated a law, rule, or regulation which was a condition for receiving payment from the Government.

Delaware healthcare providers must be more vigilant than ever in submitting claims to the Government under federal health care programs. To steer clear of potential FCA liability, Delaware health care providers must be in compliance with all the federal health care laws that they agreed to follow when entering into contracts with CMS; when dealing with Government, always turn square corners.

New Delaware Health Care Facility Inspection Law Goes Into Effect

Just six weeks after Governor Markell signed into law HB 47 authorizing the Division of Public Health to investigate and inspect unsanitary or unsafe conditions in certain facilities where invasive medical procedures are performed, the Division shut down a Dover dermatology practice after receiving 10 complaints from patients and former employees of the Center for Dermatology. On Monday, June 15th, six investigators—three each from the Division of Public Health and the Division of Professional Regulation—arrived unannounced at the Center and, after spending most of the day there, ordered the practice to close. The unsafe conditions observed by the investigators included the use of unsterilized equipment such as scalpels, forceps and tweezers, health care staff failing to wash their hands before treating patients, and improper storage of controlled substances. The Division of Public Health was also concerned that the Center could not produce a written list of its safety policies and procedures.

HB 47 was introduced in the General Assembly in the wake of the publicity surrounding the case of Dr. Kermit Gosnell, a West Philadelphia abortion provider who is accused of murder in connection with the deaths of seven infants and was associated with clinics in Wilmington and Dover run by Atlantic Women's Medical Services. The bill gives the Division of Public Health authority to inspect and investigate facilities or health care practices (physicians, dentists, podiatrists, chiropractors) performing procedures in which anesthesia or sedation is or should be used upon receiving a complaint from a patient or the occurrence of an “adverse event,” e.g., death, serious injury, or the initiation of a criminal investigation. Facilities excluded from the bill are hospitals, freestanding birthing centers, freestanding surgery centers, and freestanding emergency centers.

HB 47 also authorizes the Division of Professional Regulation to investigate and inspect unsanitary and unsafe conditions maintained by individuals licensed by the Board of Medical Licensure and Discipline, and provides that maintenance of an unsanitary or unsafe condition is “unprofessional conduct” under the Medical Practice Act.

In light of these developments health care practices are well-advised to review their written safety policies and procedures and take measures to ensure that the procedures are followed.